1 in 5 mortgages drowning

9.3 million U.S. residential properties are underwater

RealtyTrac released its U.S. Home Equity & Underwater Report for December 2013, which shows that 9.3 million U.S. residential properties were deeply underwater, or about 1 in 5 of every property with a mortgage.

"Deeply underwater" is defined as worth at least 25% less than the combined loans secured by the property.

That was down from 10.7 million residential properties deeply underwater in September 2013, representing 23% of all properties with a mortgage, and down from 10.9 million properties deeply underwater in January 2013, representing 26% of all properties with a mortgage.

The high watermark for being deeply underwater came in May 2012, when 12.8 million U.S. residential properties were deeply underwater, representing 29% of all properties with a mortgage.

"During the housing downturn we saw a downward spiral of falling home prices resulting in rising negative equity, which in turn put millions of homeowners at higher risk for foreclosure when they encountered a trigger event such as job loss," said Daren Blomquist, vice president at RealtyTrac. "Now we are seeing the reverse trend: rising home prices resulting in falling negative equity, which in turn is giving millions of homeowners a lifeline to avoid foreclosure when they encounter a trigger event. On the other end of the spectrum, the percentage of equity-rich homeowners is nearing a tipping point that should result in a larger inventory of homes listed for sale and give the overall economy a nice shot in the arm in 2014."

“However, there are still millions of homeowners who are in such a deep equity hole that it will take years for them to regain their equity," Blomquist added. "The longer these homeowners remain in a negative equity position without relief in the form of a principal loan balance reduction, the more likely that foreclosure will become the path of least resistance for them."

The universe of equity-rich properties — with at least 50% equity — grew during the fourth quarter as well, from 7.4 million representing 16% of all residential properties with a mortgage in September, to 9.1 million representing 18% of all residential properties with a mortgage in December.

“With available home inventory and interest rates at all-time lows, we experienced an increased rate of appreciation throughout the Ohio housing market during the fourth quarter of 2013," said Michael Mahon, executive vice president/broker at HER Realtors, covering the Cincinnati, Columbus and Dayton markets in Ohio.

RealtyTrac’s report also found the following:

States with the highest percentage of residential properties deeply underwater in December were Nevada (38%) Florida (34%) Illinois (32%) Michigan (31%) Missouri (28%) and Ohio (28%).

States with the highest percentage of equity-rich residential properties were Hawaii (36%) New York (33%) California (26%) Montana (24%) and Maine (24%. The District of Columbia also posted an equity-rich rate of 24%.

Related Articles

Trey Garrison was a Senior Financial Reporter for HousingWire.com. Trey served as real estate editor for the Dallas Business Journal, and was one of the founding editors of D CEO Magazine. He has been an editor for D Magazine — considered among the best city magazines in the United States — and a contributor for Reason magazine.

This month inHousingWire magazine

While other state and federal regulatory bodies overlap in their regulation of the mortgage industry, the very particular consumer focus of the CFPB is not duplicated by any other body. Will deregulation mean a return to the Wild West lending atmosphere that led to the financial crisis? What happens next? We asked John Socknat, partner at Ballard Spahr, to weigh in on what mortgage lenders and servicers can expect from a Trump administration.

Feature

Amid the potential new direction from the White House, Congress and regulators, leadership in our industry is more important than ever. Which is why HousingWire is proud to present the 40 winners of our 2016 Vanguard award. These leaders from all segments of the mortgage ecosphere demonstrate that our industry is more than capable of meeting the challenges that lie ahead.

Commentary

The marketplace is full of hard and private money lenders — it will come down to who can best assist investors in completing their goals, whether that be by providing quicker close times, or with more accurate valuations. With how many options there are for borrowers, lenders will need to start competing for marketshare as borrowers shop their situations to multiple lenders, leveraging the offers against each other. This process will force lenders to update their guidelines, or be forced out of the market.